Top SaaS growth metrics for improving retention
If you are building or supporting a GTM or growth motion for a SaaS product, it’s critical that you understand your company’s business model.
In most cases, SaaS businesses employ a subscription business model that is driven by number of seats, plan types, value metrics, and feature add-ons.
In this model, month-over-month renewals are driven by a company’s ability to get users to discover initial product value and develop habitual use of the product. A growing pool of retained habitual users also ensures expansion opportunities in the future.
The main metrics associated with these important customer journey milestones are Activation and Onboarding. These are each defined as:
The point at which a new user first experiences the core value proposition of your product.
The process by which new users get acquainted with your product and discover value.
Both of these metrics are key inputs to the retention metrics that are at the core of all growth models.
Whether your company utilizes a self-serve or sales-led GTM motion, practitioners across the entire customer journey should come together to help drive and optimize these metrics. That could be through self-serve or high-touch tactics— or a combination of both.
At the end of the day, the sooner you help your accounts and users establish habitual use of your product, the sooner you can fuel the rest of your growth levers automatically.
Goodbye signup, hello activation
When I started my Product and GTM career in the online gaming space, teams were obsessed with driving downloads and signups. As acquisition channels evolved over time, more and more users with different levels of intent were brought to the top of our funnel. We quickly learned why these could be misleading metrics to optimize for.
At the end of the day, the only users that continued to move down the funnel to convert were those that were motivated enough to get to their Aha Moment. The ones with maximum Lifetime Value (LTV) were the ones that established habitual use.
The good news was, there were a ton of things we could do in our product to help them get there.
Activate your activation strategy
There are so many ways to define and scope activation, as we laid out here. But for the purpose of this article, when I say activation I’m referring to users getting value for the first time. Also known as the Aha Moment.
When you look at activation, you’re trying to answer: How quickly can we prove our differentiated value proposition and get prospects or customers on board?
Activation might not look the same for every SaaS company. That’s because it’s dependent on your product and its use cases, as well as your GTM motion and organizational structure. For example, SaaS companies building a PLG motion follow B2C best practices, making activation events more individualized than you’d see for a B2B offering.
In some cases, activation occurs when a user completes their first action. For example, in Heap that could be, “Answered first question.”
For SaaS products, activation might require a combination of actions such as, “Created first project and invited stakeholder.”
Whatever events you define activation by, that sequence must always end in the Aha Moment: when a user experiences your product’s value for the first time.
Why is activation so important and how do you measure it?
Activation touches 100% of your users. That’s why it has the highest potential for optimization. Your activation strategy is what influences your users’ first impressions of your product. That makes it one of the most important inputs of retention– the key metric a subscription business is built on.
According to UserPilot, activation is a key metric for growth in SaaS companies. Over 12 months, a 25% increase in activation brings about a 34% rise in monthly recurring revenue (MRR).
In PLG motions, the majority of user flows are designed for self-serve progression. That makes activation and onboarding mean pretty much the same thing. Both measure the success of the self-serve flows that guide prospects and new paid users through setting up their accounts and discovering their Aha Moment.
Activation in action
The below cohort table shows the retention rates for users who only signed up for a free trial.
This next cohort table shows users that not only signed up for a free trial, but also installed the app and used it at least once.
You can see from the charts that the teams that use activation to drive growth report corresponding revenue growth as a result of higher retention. They do this by helping customers get to value quickly and easily.
There are many benchmarks out there for different types of products that give you a signal about where you’re at against other leading products in your space or category. I personally like this blog post by Lenny Ratchisky.
But it’s important to keep up with market changes over time. That blog post is now almost three years old. And as we all know, a lot has happened in the last three years.
That’s why I like to regularly poll my personal or professional networks on Linkedin or Reforge. I’ve found this to be the best way to learn about specific products or the latest benchmarks.
The importance of habit creation for SaaS growth
Habit creation, otherwise known as the product “Adoption” or “Engagement” rate, monitors the “stickiness” of your product with users. It is the difference between people using your product once and people using it regularly.
If you are new to this concept, I highly recommend the work done by Nir Eyal on the subject. Check out this short product salon session to learn about the fundamentals of habit creation.
Getting users “hooked” on your SaaS
Unlike activation, establishing a user’s habitual use typically requires help from Customer Success and Customer Lifecycle Marketing teams.
If you have a sales-assisted motion, your prospects and customers will most likely enjoy the benefits of self-serve activation. When they’re ready to convert, your sales team will swoop in to close the deal.
As you build your self-serve motion, you should begin by testing different ways to inspire habitual use. These habitual use initiatives could be high-touch, ad-hoc, or manual. Once you learn which ones are most successful, you can look into productizing and automating parts of your activation flows to scale growth impact.
To help users return to your product at the ideal frequency, choose the most common use cases for your product and test different nurture engagements such as emails or push notifications. These engagements are referred to as product callbacks.
For example, if you're managing a Cyber Security platform, callbacks could be new alerts or weekly alerts. For PMs who manage a Martech solution, sending a notification about new campaign results could be the hook that brings users back in.
To ensure your callbacks lead users to value, they can be accompanied by dedicated in-app guides. In-app guides can minimize frustration and friction for users by educating them on your product and directing them to follow the right path. This could include everything from explaining how a feature should be used to explaining where users should go after completing an action.
Callback notifications help generate “hooks” around the activities that derive the most value for customers. The hope is that users will absorb these hooks into their daily routines. Eventually, an artificial trigger won’t be needed to make users want to come back.
By this point, you should understand that activation and adoption are key for retention. Both fuel subscription growth models for SaaS teams. Because these two happen early on in the customer’s lifecycle, 100% of your retained users will go through these steps.
If you haven’t started optimizing these metrics, you have a wealth of growth opportunities waiting for you. It’s time to start testing, iterating, and learning so you can unlock supercharged growth for your entire business.